In a presentation, Wichita economic development officials ignore the cost of borrowing money.
In a presentation to the Wichita City Council on March 5, 2019, the council was shown a pro forma cash flow statement regarding the new baseball stadium.
The conclusion reached by city officials was: “The $38M equates to over 50% of the $75M stadium debt repayment.” 1
$38M, or $38,000,000 refers to the sum of the amounts the city expects to receive from these sources:
- Incremental sales tax (used to pay STAR bonds)
- TIF revenue (incremental property tax revenue)
- CID (the extra sales tax customers will pay)
- Naming rights
- Management fee (the rent the new team plays the city)
The pro forma statement shows these cash flows starting in 2020 and continuing through 2042.
$75M, or $75,000,000, refers to the cost of the baseball stadium. (In this illustration the city has not included the $6,000,000 the city plans to borrow to pay for the pedestrian bridge and riverfront improvements.)
What’s missing? Interest on borrowed money.
If the presentation said, “The $38M equates to over 50% of the $75M stadium debt principal repayment,” that would be correct. But to tell the council that it costs just $75,000,000 to repay the stadium debt ignores the fact that the city is borrowing this money.
There will be a lot of interest to pay. We don’t know how much, as the bonds have not been sold, except for the STAR bonds. The city has planned to borrow $42,140,000 in STAR bonds. In the disclosure for these bonds, the interest payments alone total $24,647,850. In some years the interest payment alone is $1,828,556. 2
Citizens should ask the city what will be the total cost of repaying the stadium debt, and not settle for answers that ignore millions of dollars in interest.
- City of Wichita. Stadium Private Development Agreement. March 5, 2019. Available at https://www.wichita.gov/Council/CC%20Presentations/2019-03-05%20PowerPoint%20Presentations/V-3%20Approve%20the%20Private%20Development%20Agreement%20with%20Wichita%20Riverfront%20LP.pdf. ↩
- Municipal Securities Rulemaking Board. CITY OF WICHITA, KANSAS SALES TAX SPECIAL OBLIGATION REVENUE BONDS (RIVER DISTRICT STADIUM STAR BOND PROJECT), SERIES 2018 (KS). Available at https://emma.msrb.org/IssueView/Details/ER387382. ↩